Banks, Sovereign Debt and the International Transmission of Business Cycles

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By Luca Guerrieri (au); Matteo Iacoviello (au); Raoul Minetti (au)
Year: 2012
Pages: 38
Binding Paperback
ISBN 978-1-4578-4626-7

Product Code: 1457846268

Description

This study examines the international propagation of sovereign debt default. The authors posit a two-country economy where capital constrained banks grant loans to firms and invest in bonds issued by the domestic and the foreign government. The model economy is calibrated to data from Europe, with the two countries representing the Periphery (Greece, Italy, Portugal and Spain) and the Core, respectively. Large contractionary shocks in the Periphery trigger sovereign default. We find sizable spillover effects of default from Periphery to the Core through a drop in the volume of credit extended by the banking sector. Tables and figures. This is a print on demand report.

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